MUMBAI: Railway-related stocks took a battering on Tuesday, the day the Narendra Modi government presented its first railway budget, which focused more on completing pending projects rather than taking up new ones. Investors and traders quickly booked profits in such stocks, as the budget fell short of their expectations.

Stocks of companies such as Texmaco Rail & Engineering, Kalindee Rail, Titagarh Wagons and Kernex Microsystems, which were supposed to benefit from the budget, ended up on the losing side, hitting the lower circuit. Stocks of some of the larger companies such as BEML, Siemens and Larsen & Toubro, which were hoping to benefit from the PPP model or through wagon leasing and outsourcing of various passenger amenities, also fell 4-7%.

Analysts had warned investors that if things do not live up to expectations, there's a possibility of sharp correction in most of these stocks, and that's exactly what happened on Tuesday. "The railway budget was about operationalising Rs 5-lakh crore worth of old legacy projects which were languishing," said Ritesh Jain, chief investment officer, Tata Asset Management.

"But it was the absence of big-bang announcement that led to a sharp correction in equity markets with rail stocks down double digits and broad markets also taking it to the chin," he added.

Most railway-related stocks had rallied ahead of the budget despite their poor financial performance. For instance, Kalindee Rail, which rose nearly 25% in the last one month till Monday, had posted a net loss of Rs 7 crore for the year ended March 2014.

Similarly, Texmaco Rail which surged over 28% in the past month, has reported 82% fall in net profit and 46% fall in revenue for the year ended March 2014. The story is the same with many other such stocks. "Most of the railway-related stocks have doubled in the last one month to unrealistic valuations on too much expectations from the government," said Alex Mathews, head of research, Geojit BNP Paribas Financial Services.

Amar Ambani, head of research at IIFL, echoed similar sentiment. "Stocks which had run up in anticipation of bold reforms, declined as investors felt that the budget was big on ideas, but short on implementation." However, some experts argued that the budget was a step in the right direction and a foundation has been laid for efficiency from the existing assets.

"The railway budget aims to set its own house and finances in order by additional revenue mobilisation through improving the finance of rail PSUs, encouraging private investment and FDI, and through the PPP model," said Motilal Oswal, CMD, Motilal Oswal Financial Services.

"The scope for private participation has been enhanced through wagon leasing and outsourcing of various passenger amenities that would enhance user experience of the railways in a major way," he added. However, if projects are executed on time and domestic companies are given more orders, their stocks will bounce back and will trade at reasonable valuations with improved earnings, said Alex Mathews of Geojit BNP Paribas.